Im Impact In Investing in in Europe Capstone Policy Project for the European Investment Bank Institute and the European Investment Fund as part of the Master in Public Affairs at Sciences Po 26 June 2020 1
Introduction • About us • Project objectives • Research process 2
Introduction | About us | MPA Program We are Sciences Po students in the Master of Public Affairs program. We have each worked for a number of years across government, consulting, private companies and entrepreneurship. Matthieu Berrone Quinnie Seon Gin Tan Courtenay Wheeler Joaquin Marcano Economist, Government Adviser, Government Adviser, MBA, Entrepreneur, MBA, Culture Specialist Housing Specialist Infrastructure Specialist Brand Manager, Consultant Chile United States Australia, New Zealand Venezuela, France, Panama 3
Introduction | Project objectives | MPA Program The overall aim of the policy project is to improve the EIB Group’s ability to connect impact entrepreneurs with impact investors in Europe. 4
Introduction | Research process | MPA Program Our project included an investigation of the impact investing landscape, an assessment of areas for improvement. We then identified proposals that could strengthen the ecosystem. The research process included analysis of widely used definitions from leading industry organizations, interviews with practitioners, and assessment of the existing tools that connect entrepreneurs with investors. 5
Introduction | Agenda | MPA Program The journey of an There are a number of The EIB Group can impact entrepreneur market failures in the work to address is complex impact investor market failures in marketplace three main areas 6
The journey of an impact entrepreneur is complex An impact entrepreneur prefers an impact investor, holding all else equal. But getting access to impact investors is complicated : • What is an impact investor? What do they expect? • How can the most important information about impact investors be found? 7
What is an impact investor? | MPA Program The answer to "what constitutes an Impact Investor?" depends on who you ask. Definitions from representative organizations in the ecosystem are quite fragmented, with inefficient overlaps or gaps regarding types of investors, areas for impact, and roles of all players in the ecosystem. Impact Investing common characteristics GIIN Case EVPA OECD IMP Ch. et al. (2019) Declared Impact intentionality X X X X X X Financial and social return on investment expected X X X X X X Investing flexibility among organisations and assets X X X X X X Importance of impact measurements and data X X X X X Long term horizon of investments X X Ecosystem understanding of impact investing X X X X X Social impact approach of impact investing X X X X X X X X Impact strategies approach X X Investment axis approach X Importance of innovation Importance of impact investing policies X X 8
What do impact investors expect? | MPA Program Definitions of impact are not standard. Investor expectations around impact and financial returns vary widely. Entrepreneur-investor matching is nuanced and very individual. A comprehensive, inclusive, and standard definition of impact investing, used across the ecosystem, is needed. “We have met with a lot of impact funds, but they cannot categorize us as we don’t have their key numbers. At first, we were looking only at impact [investors], but we were surprised not to get funds from them – so you have to be open.” - Founder and CEO of an environmental impact enterprise 9
How to find information on impact investors? | MPA Program There are many overlapping platforms and databases for finding impact investors, none of which provide all desired functionality. The amount of options complicates the research process by forcing entrepreneurs and investors to dedicate resources just to choose a platform even before they get any value out of it. 10
Addressing the market failures The difficulties that entrepreneurs face occur across the ecosystem: • There is a range of market failures that prevent the market from operating efficiently and for entrepreneurs – and others – from being able to discern ‘quality’ impact investors • The EIB Group can leverage its position to address market failures 11
Key market failures | MPA Program Our interviews and research highlighted four ‘market failures’ that reduces the ability of impact entrepreneurs and impact investors to connect. No universally agreed-upon definition of impact investing . Lack of a system for classifying different types of impact investors. Access to quality information is problematic for all actors in the ecosystem. The ‘quality’ of impact investing is difficult to discern. 12
Lack of quality information | MPA Program Proliferation of platforms leads to information saturation; quality information about other actors in the impact investing ecosystem is needed. “There is a lot of information out there already. To be honest, there is not enough time to screen all the start-ups out there. What I need more is quality information. Maybe... about what is new.” - Dedicated social impact venture capital fund manager 13
Lack of trustworthy classification of impact investors | MPA Program ”Impact - washing” is a concern. “ Impact is the new sustainability – nobody is clear what it means and everybody can claim to be an impact investor.” - Impact investment fund manager 14
Leveraging the role of the EIB Group | MPA Program The EIB Group can continue leverage its market influence to strengthen the impact investing sector across Europe. Indeed, the EIF already shapes the impact investing sector by financing impact investors. Impact investing aligns with the missions of the EIB Group: “ We help the economy, create jobs, promote equality and improve lives for EU citizens and for people in developing countries.” The EIB Group can leverages its existing ‘market facilitator’ role to trigger more investment from the private sector in impact investing. “The combined expertise of our economists, engineers, financial analysts and climate specialists ensures the success of our projects. In turn, the stamp of approval from our specialists triggers more investment from the private sector .” Stamp of Setting standards Market levers of the EIB Group: Networks Funding Approval for investing 15
Our proposals for the EIB Group Our proposals seek to improve the operation of the impact investing marketplace in line with the core role and market-leading position of the EIB Group: • Proposal 1: Support a more comprehensive taxonomy for impact investing. • Proposal 2: Improve existing platforms to connect entrepreneurs and investors. • Proposal 3: Move towards a rating of impact investors. 16
Proposals | Proposals to improve the ecosystem | MPA Program We identified three proposals that seek to leverage the role of the EIB group to address the key issues that we found with the impact investing ecosystem. PROPOSAL 1 PROPOSAL 2 PROPOSAL 3 - Taxonomy - - Improving investor databases - - Investor rating system - Adopt and promote a Encourage the improvement of Promote a rigorous EIB standardised taxonomy for existing impact investing definition to support best impact investors. Encourage databases. practice impact investing. reporting. 17
Proposals | Proposal 1 : Standardised taxonomy | MPA Program Simple and universal language for classifying different types of impact investors in a way that is useful for entrepreneurs, investors, limited partners and other participants in the ecosystem. Impact investment classification General information (1) Fund or program (1.1) Organisation (1.2) Type of investor (2) Type of impact (3) Type of investment (4) Organisation (2.1) Target sector (3.1) Financial return (4.1) Fund or program (2.2) Target outcome (3.2) Stage (4.2) Impact network (2.3) Target location (3.3) Form (4.3) Impact measurement (3.4) 18
Proposals | Proposal 1 : Detailed taxonomy | MPA Program The taxonomy provides a system for classifying different types of impact investors. The taxonomy relies on the availability of standardised information from investors being made public. 19
Proposals | Proposal 2 : Connecting entrepreneurs and investors | MPA Program Improved databases with complete listings of impact investors could better support the operation of the impact investing ‘marketplace’ by providing additional information to impact entrepreneurs. MARKETPLACE: Incubators Accelerators Investor databases Networks Consulting organisations Start-up competitions Government programs Events Etc. 20
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